Make the Most of Your Household Budget

Getting a clear picture of your household financial situation is always a good strategy. But getting it done can be challenging, particularly in an uncertain economic climate. The best way to manage your money (and hang on to more of it) is by creating and following a budget. It opens your eyes to your cash flow while identifying where extra money may be escaping.

Planning What You Pay Out
The first step is to create a spreadsheet or even a simple scratchpad list of all household income and monthly expenses. Another idea is to use a small dry erase board that you can reset each month. Place three columns with the name of the item, the amount, and the date due. List your monthly income first, at top, including net wages and tips from all sources, any child support and other income. Then, begin posting your fixed expenses from largest to smallest. These may include home mortgage or rent, car payments, insurance payments (health/auto/life), utilities, and any other loan payments or revolving debt like credit cards. Lastly, add other monthly expenses including cell phone bill, cable bills or streaming services and other subscriptions.

Next up are the living expenses. Set budget amounts for groceries, personal care items, gas/transportation costs, dining out, entertainment and any other monthly expenses. A good tip is to review your last three months bank statements to evaluate estimates for these items.

An Initial Look
If your total of all outgoing expenses is lower than your income, you’re in good shape. If the opposite is true, then it’s time to reduce those expenses.

Cost Cutting Begins
One of the first objectives in budgeting is to identify expenses that can be eliminated or at the least, reduced. Cable and cell phone companies frequently offer bundles, packages, or special promotions. And it’s often worth reaching them directly to see if you can negotiate a better deal. Some companies that do annual renewals are known to offer lower rates if you call to cancel or switch to another provider.

Another area to evaluate are the monthly recurring expenses for subscriptions. Are all of them needed and still active? Have there been any increases lately? Is there a way to use one and not another? This is when you can identify what you are truly using versus what may be unnecessary.

Getting Efficient
Energy bills can be an area of improvement. Programmable or smart thermostats can save money by reducing the number of hours they’re running when you’re not at home. And some energy companies offer budget friendly billing options whereby the average monthly cost stays more consistent year-round, rather than paying high amounts in the hottest or coldest months of the year.

Setup Savings
Just as you have recurring expenses and subscriptions going out each month, you can set up a fixed amount to drop right into your savings account. Start with an amount that suits your budget, then gradually look to increase. Once it’s set up, you’ll forget it’s there and be grateful each year when you check your savings account statement. An immediate goal would be to save 3 to 6 months of monthly household expenses as a security blanket. Then, look at putting some back for vacations, a home improvement project, or any big purchase. If you have children, setting up a 529 plan is an excellent way to save for college and possibly gain a tax advantage at the same time.

Review, Adjust & Manage
The ultimate benefit of creating a budget is to better understand and manage your cash flow. Even as expenses or income fluctuates, you’ll be able make adjustments on the fly and determine the net effect.

NMLS #718145

published on 04/13/2021